Tone Firms Up as MTA Deal Prices

After a one-day postponement, Barclays Capital brought $657 million of New York Metropolitan Transportation Authority bonds to the municipal market yesterday, including $608 million of taxable Build America Bonds. ­Traders reported a firm tone in the secondary ­market.

“We’re a solid three to five basis points better, across the board,” a trader in Los Angeles said. “There’s decent activity, and institutional investors are putting money to work. We’re probably closer to five basis points better on the long end, but I’d say a good three to five overall.”

“We’ve seen a nice little rally,” a trader in New York said. “It’s easily three or so basis points better, but probably as much as five basis points or so depending on what kind of credit you’ve got and where on the curve you’re talking.”

In the new-issue market yesterday, Barclays priced $657 million of bonds for the MTA, including $608 million of BABs.

The $608 million BAB component reportedly contained serial maturities from 2018 through 2024 and term bonds in 2031 and 2039, according to market sources.

The 2039 maturity was reportedly priced to yield 210 basis points over the comparable Treasury yield. No further pricing information was available by press time.

The deal also contained a $49.2 million tax-exempt component, which matures from 2011 through 2017. Yields range from 1.06% with a 2.5% coupon in 2011 to 3.35% with a 5% coupon in 2017. The bonds are not callable.

The deal was originally slated to be priced Wednesday, but Barclays withheld the scheduled pricing following a rating action by Moody’s Investors Service, which downgraded the MTA bonds to A3 from A2 earlier in the day.

“The rating action was prompted by the MTA’s revenue deterioration over the past several months, leading to increased financial strain and liquidity pressure after the MTA had already addressed declining revenues by reducing spending and proposing service cuts to take effect later this year,” Moody’s analysts wrote in a press release.

Also Wednesday, Fitch Ratings affirmed its A rating with a negative outlook on the credit, but stated it “could take an adverse rating action” if the MTA was unable to combat the anticipated $350 million budget shortfall for 2010.

And yesterday, Standard & Poor’s released a report stating that its ratings on the authority “are unaffected by the MTA’s announcement Feb. 3 that the amounts it is to receive from the regional mobility tax will be lower than assumed in their December financial plan.”

Meanwhile, the Treasury market also showed gains yesterday. The benchmark 10-year note finished with a yield of 3.60%, after opening at 3.71%. The yield on the two-year note finished at 0.81% after opening at 0.87%. The yield on the 30-year bond finished at 4.53%, after opening at 4.63%.

The Municipal Market Data triple-A scale yielded 2.89% in 10 years and 3.79% in 20 years yesterday, after levels of 2.96% and 3.82% on Wednesday. The scale yielded 4.14% in 30 years yesterday, after 4.20% on Wednesday.

Wednesday’s triple-A muni scale in 10 years was at 80.0% of comparable Treasuriesand 30-year munis were at 90.7%, according to MMD, while  30-year tax-exempt triple-A general obligation bonds were at 93.7% of the comparable London Interbank Offered Rate.

Trades reported by the Municipal Securities Rulemaking Board yesterday showed gains. Bonds from an interdealer trade of taxable Illinois BABs 5.1s of 2033 yielded 6.41%, down two basis points from where they traded Wednesday. A dealer sold to a customer California 4.5s of 2032 at 5.35%, four basis points lower than where they were sold Wednesday.

A dealer bought form a customer taxable Texas BABs 5.517s of 2039 at 5.44%, down five basis points from where they were sold Wednesday. Bonds from an interdealer trade of New York State 5s of 2026 yielded 4.14%, three basis points lower than where they traded Wednesday.

In economic data released yesterday, initial jobless claims increased by 8,000 to 480,000 for the week ending Jan. 30.

Continuing claims increased by 2,000 to 4.602 million for the week ending Jan. 23.

Economists expected 460,000 initial jobless claims and 4.580 million continuing claims, according to the median estimate from Thomson Reuters.

U.S. nonfarm productivity increased at a 6.2% annual rate in the fourth quarter ended Dec. 31.

Unit labor costs fell 4.4%, a steeper decline than economists estimated.

Economists polled by Thomson Reuters expected productivity to increase 6.0% for the quarter and for unit labor costs to fall 2.5%, according to the median estimate.

New factory orders for manufactured goods increased 1.0% in December, the fourth consecutive increase and the eighth increase in nine months.

Orders excluding transportation rose 1.2% following a revised 2.1% increase in November. In November all orders were revised up to a 1.0% increase.

Economists polled by Thomson Reuters expected factory orders would rise 0.5% for the month.

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